Supreme Court decision to allow CAG to audit telco accounts changes the way public utility companies function in this country

This case could open the doors for many more such cases, where public utilities have been given out without any regard for what consumers should be asked to pay

dna Research & Archives

In a major setback to telecom companies (telcos), the Supreme Court on Thursday upheld the Delhi High Court’s order of allowing the Comptroller and Auditor General (CAG) to audit telecom companies’ accounts.

It may be recalled that the Delhi High Court had, on January 6 this year, permitted the CAG to audit the accounts of telcos. The purpose was to examine whether they under-reported revenues to pay a lower revenue share of licence-fee to the government. This order was challenged by the telcos and the matter was finally heard and decided by the Supreme Court.

This case is bound to have an impact on yet another case that is currently being heard by the Supreme Court: on whether the CAG has the right to audit the accounts of power distribution companies.

It will also have a bearing on all companies that seek to take public ‘goods’ and then offer it as a service to the public. Telecom spectrum, power or water distribution are only some examples of this.

One of the reasons the Supreme Court is now compelled to look at all such cases is the sheer non-application of mind by the country’s legislators to frame an omnibus legislation like the Public Utilities law in the United States. Under this law, any company which seeks to offers a service that is defined as a public utility must observe certain norms.

One of the norms is to first get the consent of the public on the tariffs that the company might want to charge from consumers. The other laws relate to the right of open access and the right to compete.

Such an omnibus legislation would also lay down the norms for grievance redressal.

The inability to protect consumer interests is one of the major charges against the Indian legislative body. Consider the following instances.

When the telecom spectrum auctions took place recently, the policymakers failed to put in a condition that the price to be bid by companies would be subject to a maximum tariff of Rs X per minute (or kb for data). Unless such caps are designed, the field is left open for monopolistic practices in the future. Any subsequent redressal of such practices can also upset companies’ plans. This is what happened when Pramod Mahajan, the late Union telecom minister, unilaterally announced a cap on call rates at Rs 1 per minute. All telecom tariffs were modified overnight, throwing many companies into a tizz. India’s policymakers could have also toyed with the concept of a reverse auction based on the lowest tariff that companies would be willing to charge consumers (after specifying the reserve price for the spectrum that companies would have to pay). Neither method was adopted. Instead, the government swung from one extreme of ‘gifting’ away spectrum, to raking in as much of money as possible, disregardful of what it could mean for consumers.

Take a second case. When Haryana could enter into a 20 year PPA (power purchase agreement) with the Adani group in August 2008 for power at under Rs 3.50 per unit (kWh), why is it that the power ministry in Delhi decided to purchase power at significantly higher rates from private power producers (this was before BSES and Tata Power were given licences to distribute power, but the PPAs entered continue to be in force). It must be remembered that Adani’s PPA includes the cost of transmission, is based on the costliest coal (imported coal) and is a new power plant, hence involving higher capital costs. The concept of entering into contracts after publicly disclosing other benchmark prices offered by other players is another rule that has not been adopted.

Take a third instance. When delivery of letters and parcels was thrown open to competition, and private courier companies were allowed to compete with Indian Post, India’s legislators did not see the need to put in a regulator who could ‘de-licence’ a courier company, if it failed to meet minimum service standards. Consequently, the market is rife with instances where courier boys do not deliver letters, and just claim blithely that the addressee could not be found, or was not at home, when neither of the two reasons was true. Try complaining to courier companies, and you will find that they are less responsive than Indian Post.

In all three cases, you will find instances of policymakers being guilty of either incompetence or collusion. If it is the former, they should have been sacked from their jobs promptly. If it is the latter, they should have faced criminal prosecution.

The absence of a public utility law could have allowed all this more meaningfully. Now, as in many cases, because of the lapse on the part of the executive, the courts have to step in and point out how a policy and consequent practices are flawed.